Separately priced warranty is an agreement under which a customer purchases an extended warranty for a stated amount, separate from the sales price of the product, and it is not included in original price of the product. According to FASB ASC 605-20-25-2 and 605-20-25-3, the revenue recognition topic includes coverage against the risk of specified claim for a specific period of time is, provided under extended an warranty contracts, and the revenue from these contracts shall be deferred and recognized in income on a straight-line basis over the contract period. If the cost of performing services are incurred other than a straight-line basis, then the revenue shall be recognized over the contract period, in proportion to the costs incurred in performing services under the contract.
According to FASB ASC 605-20-25-1, the revenue recognition topic includes that warranty contracts are considered separately priced, if the warrant protection or product services are not included in the original price of the product, and extended warranty is purchased separately by the customers.